Opposition media groups in Russia to merge, go public

June 17 2014

Alexeï Lossan

specially for RIR

Pussy Riot punk band members Maria Alyokhina (L)and Nadezhda Tolokonnikova, freed from prison under an amnesty, give a press conference on Dozhd [Rain] TV channel. They were sentenced to two-year prison terms in July 2012 for offensive performance inside the Christ the Saviour Cathedral in February 2012. Source: Sergei Bobylev

Dozhd TV and the Slon and Bolshoi Gorod media outlets are to be brought into one media group will be floated on the Moscow stock market in an IPO.

Former investment banker and owner
of Russia’s main oppositional television channel Alexander Vinokurov has united
his various independent news organizations into one media group and is putting
it on the Moscow stock market. This will mark the first Russian media holding
to have an IPO since 2006.

The media holding includes
Alexander Vinokurov’s TV channel Dozhd (“Rain”), the magazine Bolshoi Gorod,
and the online edition of the Slon media outlet, all of which are known
for espousing oppositional points of view. In light of the serious financial
difficulties these publications have been experiencing lately, the investor has
decided to hold an IPO with a view to alleviating those worries. The holding’s
management plans to spend the proceeds on a new studio complex for Dozhd TV.
The value of the IPO remains unknown, though as Vinokurov said on Dozhd, the
amount could be anywhere from 300 to 700 million rubles ($8.7-$20.4 million).

"This idea sounds very
interesting and even quite logical. Despite the small scale of the business,
for companies with similar profiles, going public has proven to be a
justifiable strategy,” says Maxim Klyagin, an analyst at Finam Management.
According to Klyagin, the alternatives - to obtain loans from issuers in
second-and third-tier echelons, those that work in the technological and
intellectual spheres - are currently limited. In such circumstances, an IPO as
a tool to attract external resources can be one of the most effective
solutions, he said.

In total, the holding’s revenue in
2013 was slightly more than 530 million rubles ($15.4 million), with the TV
channel generating nearly 70 percent of that total. "Taking into account
the more than 50 percent growth in monthly television audience according to the
2013 results, the asset does look attractive for an IPO,” says Timur
Nigmatullin, an analyst at Investcafe.

Which bank will carry out the IPO
is still unknown. However, Vinokurov has not ruled out participating himself in
the preparations for the IPO. In 2001, he created one of the largest
investment banks in Russia, KIT Finance. In 2008, Forbes magazine estimated
Vinokurov’s total fortune at $1.3 billion. However, during the crisis of
2008-2009, he lost most of his assets, and his bank was sanitized by the state.
Following this, Vinokurov decided to move into the media business, and in 2009,
he invested in the creation of the Dozhd TV channel.

Previous experience

As far as IPOs for Russian media
holdings on the Moscow stock exchange go, Vitaly Tsvetkov, head of the
information analysis department of the audit and consulting group Gradient
Alpha, can recall only the media holding RBC, which went public over a decade
ago in 2002. During that IPO, a package was presented that was 16 percent of
the company’s share capital, and as a result of going public, the company
attracted $13 million. A year and a half later, after its first public offering
on the stock exchange, RBC’s stock price doubled.

Another large Russian media company
had its IPO in the United States on the NASDAQ stock exchange. In June 2006,
CTC Media, which united several Russian TV channels, held its IPO, putting up
16.38 percent of shares at $14 apiece. During that IPO, the company’s
shareholders earned about $350 million.

In 2010, one of the largest media
holdings in Russia, Profmedia, held its IPO on the London Stock Exchange. The
holding, which includes several well-known magazines and online publications, planned
to offer investors up to 40 percent of its shares. Given the fact that the
banks assessed the entire business at $2-$2.5 billion, the IPO could have
reached a record $1 billion. However, due to instability on the financial
markets, the holding decided to abandon the IPO. Subsequently, in 2013, its
main shareholder, Vladimir Potanin, the owner of the largest nickel company in
the world, Norilsk Nickel, sold Profmedia to Gazprom-Media (a subsidiary of the
oil and gas giant Gazprom) for $602 million.

As it stands, no Russian media
holding has put its shares on the stock exchange since 2006. Vinokurov's
decision to move forward with the IPO could change that trend. According to
Nigmatullin, the IPO for Vinokurov’s opposition media holding company is
unlikely to happen in 2014. "The fact is that these particular media
projects are characterized by high political risk,” warns the expert.

In January 2014, Vinokurov’s
primary media asset, Dozhd TV, fell into financial difficulties after
the channel submitted a live poll to its audience asking the question “Would it
have been better to surrender to the German troops during World War II in
Leningrad (present-day St. Petersburg) if, as a result, the 900-day siege,
marked by starvation that killed more than 600,000 citizens, could have been
prevented?” Many public organizations, politicians, and ordinary viewers found the
question to be offensive. After the survey, the largest cable operators
expelled Dozhd TV from their service packages, and the channel’s audience
plummeted by 80 percent. The channel’s leadership viewed the actions of the
channel operators as signs of political pressure against its oppositional
political positions.

In June 2014, at a press conference
after the ceremonies in Normandy, Russian President Vladimir Putin separately
responded to a question about the fate of Dozhd TV, saying he did not give
anyone instructions to stop broadcasting it. "I have never given a command
to stop working with any cable channels, and I do not feel entitled to begin
offering such guidance now," said the head of the Russian state in
response to a reporter's question on the TV channel.